Banking & Finance
Brexit is likely to have a significant impact on the financial services market in the UK and Ireland.
One of the main impacts of Brexit is likely to be the loss of passporting rights where UK based financial services firms were able to operate across the EU on the strength of their UK regulatory authorisation. Under the current regime, there is no requirement to apply for separate authorisation in every EU jurisdiction but that is likely to change in a post-Brexit world. The equivalent, but opposite, concern will apply to EU based financial services firms that want to operate in the UK. This concern has already led to financial services firms relocating from London to other financial hubs within the EU. As at the start of October 2019, Dublin has been the main beneficiary (115 firms have opted for the Irish capital city as their new base for post-Brexit operations) but Luxembourg, Paris, Frankfurt and Amsterdam are all benefitting from this rush to relocate in advance of the UK’s exit from the EU.
The loss of passporting rights will undoubtedly have an impact on financial services firms’ strategic direction and the jurisdictions in which they operate. The consequences are unclear, but it is reasonable to expect that this may lead to a contraction in the number of market participants or on financial services firms becoming more focused on their “home” jurisdictions. It also means that lenders will have to assess whether or not they continue to have the relevant authorisation to perform their obligations under the loan documents. While this might be a less pronounced risk for corporate lending, lenders operating in the regulated/consumer lending space will certainly need to be particularly alert to that risk and take steps to mitigate risk of regulatory non-compliance.
Template loan and security documentation should also be reviewed to ensure it remains valid and fit for purpose following Brexit. Particular concerns would be the removal or replacement of redundant legislative references, a review of covenants requiring compliance with all laws and whether those remain capable of performance or might trigger unintended default, the consideration of whether confidentiality and data protection obligations can continue to be met, whether a change in the insolvency or loan restructuring landscape as a result of Brexit will impact on enforcement and security rights and whether jurisdiction and choice of law provisions need to be reviewed in light of changes to the processes for mutual recognition of judgments.
Our Banking team has a strong and proven track record of advising lenders and borrowers across the UK and Ireland on all aspects of their funding and financing requirements. We are ideally placed to advise on the implications and consequences of Brexit for client’s lending structures.
If you or your business have any questions on the potential implications of Brexit in relation to banking and finance, please feel free to get in touch.